Telegraph Reporters 31 May 2019 • 9:05am
- US to impose 5pc tariff on all Mexican goods from June 10
- FTSE 100 falls 0.8pc in early trade
- Pound sinks to five-month low
- Asian stock markets slide
- Brent crude falls more than 1pc to $65.97
The FTSE 100 shed 0.8pc and the mid-cap FTSE 250 fell 0.9pc in early trade. Both indices are on course for their first monthly falls this year, down 3.5pc and 4.5pc respectively since the start of May.
Data on Friday showed China's factory activity shrank more than expected in May, another stark reminder of the economic ramifications of the Sino-US trade dispute.
Combined with Mr Trump's Mexican standoff, that led London's indices of financial stocks and miners to give up more than 1pc each, while heavyweight oil stocks also skidded.
"The worry is who's next on Trump's list - the EU may be next," Markets.com analyst Neil Wilson said. "Coming at a time of a breakdown in talks with China, it's another blow to bulls and we should consider further downside risks from escalation."
Housebuilders also fell after mortgage lender Nationwide said British house price growth unexpectedly eased to its slowest rate in three months, shining a light on how lingering Brexit uncertainty is hitting consumer sentiment
The investor mood darkened further when a key measure of Chinese manufacturing activity for May disappointed, raising questions about the effectiveness of Beijing's stimulus steps.
Markets moved aggressively to price in deeper rate cuts by the Federal Reserve this year, while bond yields touched fresh lows and curves inverted further in a warning of recession.
Washington will impose a 5pc tariff on Mexican goods from June 10, which would then rise steadily to 25pc until illegal immigration across the southern border was stopped.
Mr Trump announced the decision on Twitter late on Thursday, catching markets completely by surprise.
"The mercurial President Trump has signalled via Twitter this morning that his mindset is shifting ever farther from reaching trade deals," warned Eleanor Creagh, a strategist at Saxo Capital Markets Australia.
Yields on the 10-year Treasury note quickly fell to a fresh 20-month low of 2.17pc, while the dollar jumped 1.7pc on the Mexican peso.
E-Mini futures for the S&P 500 slid 0.8pc and FTSE futures 0.4pc. Germany's DAX shed 0.7pc.
China's blue chip index held steady, partly on talk Beijing would now have to ramp up its stimulus, but again was nursing loses of 6.8pc for May.
Japan's Nikkei fell 1.6pc, dragged down by big falls in car makers.
The pound hit $1.2611, nursing a 3.2pc loss for the month so far.
In commodity markets, spot gold firmed 0.4pc to $1,293.33 per ounce.
Oil prices fell to their lowest in almost three months on fears a global economic slowdown would crimp demand.
Brent crude futures lost 91 cents to $65.96.
Investors clearly reckoned that opening a new front in the trade wars would pressure central banks everywhere to consider new stimulus.
"What Clarida's comments have done is clarify in many people's minds the answer to the questions of whether low inflation proving more than transitory would itself be enough to get the Fed to ease – the answer appears to be 'yes'," said Ray Attrill, head of FX strategy at National Australia Bank.
"That served to reinforce prevailing market expectations that the Fed will be easing in the second half of this year."
Source: The Telegraph